Volkswagen will stop making cars at its Dresden plant after Tuesday, marking the first time in the automaker's 88-year history that it has closed production lines in Germany. Production lines at the plant are shut as Europe's largest automaker faces cash flow pressures as weak sales, sluggish demand and U.S. tariffs weigh on U.S. sales.
The Dresden plant has become emblematic of Volkswagen's electrification progress, with its most recent model being the all-electric ID.3 © EPA
Volkswagen has been struggling to allocate an investment budget of about 160 billion euros over the next five years as gasoline-engine cars are expected to last longer. This rolling budget, which is updated annually, has been slashed in recent years. The budget amount for the period 2023 to 2027 is 180 billion euros.
The automaker's chief financial officer, Arno Antlitz, said in October that the company's net cash flow could be slightly positive in 2025, after previously expecting it to be close to zero. However, analysts said the automaker would still face further pressure.
"Cash flow will certainly come under pressure in 2026," said Bernstein analyst Stephen Reitman, noting that the auto group is looking for ways to cut expenses and boost operating profits.
Reitmann said Volkswagen was facing "widespread" challenges, with the extended life expectancy of fossil fuel engines requiring new investment. "You have to look at next-generation gasoline technology," he added.
Moritz Kronenberger, a portfolio manager at Union Investment, said some of Volkswagen's spending plans must be cut. To achieve Volkswagen's investment targets, "some other ideas and projects have to be eliminated from the plans," he said.
Since production began in 2002, the Dresden plant has produced fewer than 200,000 vehicles, less than half the annual output of Volkswagen's central plant in Wolfsburg.
The move marks a small step in Volkswagen's plans to cut production capacity in Germany. The changes are part of a deal reached with unions last year that will also see the Volkswagen brand cut 35,000 jobs in Germany.
Volkswagen brand chief Thomas Schaefer said this month that the decision to close production lines had not been taken "happily" but that "it was necessary from an economic point of view."
Designed to showcase Volkswagen's engineering prowess, the plant was initially tasked with assembling the high-end Volkswagen Phaeton. After the Phaeton ceased production in 2016, the Dresden plant became emblematic of Volkswagen's electrification efforts, most recently producing the all-electric ID.3 model.
The land will be leased to the Technical University of Dresden for the establishment of a research park for artificial intelligence, robotics and chip development.
Volkswagen and the university have pledged to invest 50 million euros in the project over the next seven years, while the car giant said it would continue to use the facility to deliver cars to customers and use it as a tourist attraction.